With no pure play robo-advisor turning a profit in the UK market, the recent demise of UBS Smartwealth has seen some observers question the viability of the industry. Questions being asked include: If UBS can’t make it work, how can a poorly funded startup? And, how can the smaller firms cope without the investment expertise and strong branding of an institution like UBS?
As a slightly cynical Investment turned fintech professional, I’m less surprised by this than most. Like a lot of capital markets behemoths UBS has had a limited experience of success in the two decades I’ve been following it. From heavy involvement in subprime, to the mis-handled Facebook IPO, to the Kweku Adoboli scandal (a quick and unnecessary $2bn loss) UBS has a 'colourful' history.
When I started in the financial markets UBS asset management was a Goliath and the largest investment manager in the world. It was one of the most important buy-side clients and top of every salespersons call list. Now, barely fifteen years later, they are not even in the top ten and are still struggling to retain assets, with active management looking to be in secular decline.
So to me a UBS withdrawal from the digital advice market, means little as the firm has sometimes struggled to adapt. Their robo proposition had a couple of notable flaws and had always struggled to get the positive press and awards of rivals like Scalable Capital and Nutmeg.
UBS overestimated their own relevance, leading to a lack of brand aswareness. Whilst UBS is well known in investment circles, for UBS Smart Wealth’s target audience of the mass affluent, many in the UK have no knowledge of or interest in who UBS are and what they represent. A quick survey of any group of reasonably affluent Brits would show virtually no recognition of the brand among non-finance types.
Across the world, the robo-advice sector has used price as the differentiator to move investors away from traditional advice channels onto their digital platforms. As one of the most expensive platforms on the market, Smart Wealth was always likely to struggle.
Lack of Value
In consumer markets when you don’t seek cost-leadership, you need to demonstrate value. St James Place consistently achieves some of the highest customer satisfaction scores in UK financial advice, despite significantly higher fees than many of its rivals – it does this using the personal touch and the formation of long-term relationships. Smart Wealth, at least to my understanding, demonstrated its value only in using the UBS brand which relates neatly back to my first point.
As a point of contrast to the decline of UBS Asset Management and the sad withdrawal of its robo from the UK market, let’s look at the two largest asset managers in the world, BlackRock and Vanguard.
These firms are both still growing strongly, attracting assets and increasing market share, and they are investing heavily in providing digital platforms. Blackrock with its investment in Scalable Capital (thought to be the fastest growing ‘pure’ robo in Europe) and Vanguard with its direct to market platform are showing increased confidence in digital advice.
In fact, a year on from launch, Vanguard’s platform has approximately £1bn AUM and is likely to be the largest robo-advisor in Europe, and this has been achieved with little in the way of advertising spend or branding, but by focusing on the quality of the product.